What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-03 · 98 added, 163 removed, 174 unchanged (60% of the section changed)

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By building partnerships and strategically deploying capital, we seek to grow the business and enter into attractive verticals and associated businesses.

Throughout 2021, we continued to make progress in achieving our strategic goals, including an 82% increase in our agent count, going from 35,877 agents as of September 30, 2020 to 65,269 agents as of September 30, 2021.

Throughout 2021, and during the first quarter of 2022, we continued to make progress in achieving our strategic goals, including an 55% increase in our agent count, going from 50,333 agents as of March 31, 2021 to 78,196 agents as of March 31, 2022.

The expected outcome of these activities will be to better position us to deliver on our full potential, to provide a platform for future growth opportunities, and to achieve our long-term financial goals.

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The economic conditions influencing the housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability and supply and demand.

In periods of economic growth, demand typically increases resulting in accelerated home sales transactions and rising home sales prices.

In periods of economic growth, demand typically increases resulting in higher home sales transactions and home sales prices.

Similarly, a decline in economic growth, increasing interest rates and declining consumer confidence generally decreases demand.

Additionally, regulations imposed by local, state, and federal government agencies, and geopolitical instability, can also negatively impact the housing markets for which we operate.

For the period ended September 30, 2021, the COVID-19 pandemic has continued to be contained due to the rate of inoculation and efficacy of vaccines.

However, there is still volatility and uncertainty surrounding the outlook of the global economy due to inconsistencies in lifting restrictions across geographic markets and new variants to the virus.

We believe that the economy will continue

to rebound depending on the continued pace, rate, and effectiveness of lifting public health restrictions on businesses and individuals and how quickly people become comfortable engaging in public activities.

According to National Association of Realtors (“NAR”), the housing market is past the recovery phase from the initial downturn during the beginnings of the COVID-19 pandemic.

Current home sales are now at a pre-pandemic level, which is due to a significant increase in demand.

The sizable shift to remote work, which has led to current homeowners looking for larger homes and vacation homes, and the continued historic low interest rates have accelerated housing demand.

As of September 2021, existing home sales increased 7% on a seasonally adjusted annual rate.

This is mostly driven by some improvement in supply;

however, housing inventory is still down year-over-year.

While the demand is driving home prices up, more buyers are waiting on more inventory and prices to stabilize.

According to NAR housing statistics, total housing inventory at the end of September 2021 was down 13.0% from the same time in prior year with only 2.4 months of inventory supply, while the existing-home median price reached a historic record high of $352.8 as of September 2021, which is a 13.3% increase from the same period in 2020.

The demand for homebuying remains high.

NAR reported that pending home sales rebounded in August by 8%, which is a positive indicator of continued housing demand.

This NAR index measures housing contract activity and is based on signed real estate contracts for existing single-family homes and condos.

The Company continues to monitor the macro and microeconomic environments but sees the demand for housing continuing throughout the year due to continued low interest rates and overall promising economic outlook.

The Company is positioned to continue to grow in light of a series of fluctuations in economic activity.

The Company continued its growth trajectory through the third quarter of 2021 with a year-over-year increase in revenue of 127% and an increase in agent count of 82%.

However, the Company continues to monitor the continued course of COVID-19, specifically in key areas of operations and the spread of new variants and the overall economic conditions affecting the real estate market through the end of 2021.

For the period ended March 31, 2022, the effects of the COVID-19 pandemic on business worldwide lessened, however the full magnitude and duration of the impact from COVID-19 are not fully known and cannot be reasonably estimated as the global economy continues to recover and adapt.

The impact to the Company for the period ended March 31, 2022 has been minimal to date.

We believe that once COVID-19 is further contained, the economy will continue to rebound depending on the continued pace, rate, and effectiveness of lifting public health restrictions on businesses and individuals and how quickly people become comfortable engaging in public activities.

According to the National Association of Realtors (“NAR”), as of 2021, the housing market is the strongest it has been in 15 years, however as of the first quarter of 2022, activity in the housing market has slowed.

Due to a rise in interest rates and home prices, the demand has begun to decrease.

According to the NAR housing statistics, existing home sales, adjusted for seasonality, decreased in the first quarter of 2022, while the average home sale price increased to $387.1 (preliminary).

As of March 31, 2022, housing inventory continued to decline to 0.95 million and a 2.0-month supply, which are both historic lows.

The NAR reported that pending home sales fell 4.1% for the fourth consecutive month, indicating a slowing in contract activity, mostly impacted by inventory levels and rising interest rates.

The pending home sales index measures housing contract activity and is based on signed real estate contracts for existing single-family homes and condos.

The Company is positioned to grow in light of a series of fluctuations in economic activity.

The Company continued its growth trajectory through the first quarter of 2022 with a year-over-year increase in revenue of 73% and an increase in agent count of 55%.

However, the Company continues to monitor the overall economic climate, specifically in key areas of operations, affecting the real estate market through the end of 2022.

Regardless of whether the housing market continues to grow or slows, we believe that we are positioned to leverage our low-cost, high-engagement model, affording agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to survive and thrive in a series of fluctuations in economic activity.

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According to NAR, inventory of existing homes for sale in the U.S.

was 1.27 million as of September 2021 (preliminary) compared to 1.46 million at the end of September 2020.

was 0.95 million as of March 2022 (preliminary) compared to 1.05 million at the end of March 2021.

NAR indicated the need for new home construction due to the high demand of homes and the record-low inventory levels.

Mortgage Interest Rates

According to NAR, mortgage interest rates on commitments for 30-year, conventional, fixed-rate mortgages averaged 2.9% for the third quarter of 2021 compared to 3.0% for the third quarter of 2020.

Mortgage rates are forecasted to increase minimally to 3.3% throughout the end of 2021, with an expected increase in interest rates in 2022 to 3.6%.

Low mortgage rates are expected to continue to contribute to overall high demand for homebuying.

According to NAR, mortgage interest rates on commitments for 30-year, conventional, fixed-rate mortgages averaged 3.8% for the first quarter of 2022 compared to 2.9% for the first quarter of 2021.

Mortgage rates are forecasted to increase to 4.9% throughout 2022, with an expected increase in interest rates in 2023 to 5.4%.

Increases in mortgage rates are expected to contribute to a decline in demand for homebuying.

Housing Affordability Index

According to NAR, the composite housing affordability index decreased to 151.3 for August 2021 (preliminary) from 165.8 for August 2020.

According to NAR, the composite housing affordability index decreased to 135.4 for February 2022 (preliminary) from 170.4 for February 2021.

The housing affordability index continues to be at favorable levels.

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Home Sales Transactions

According to NAR, seasonally adjusted existing home sale transactions increased to 6.3 million for September 2021 (preliminary) compared to 6.4 million for September 2020.

According to NAR, seasonally adjusted existing home sale transactions decreased to 5.8 million 2022 (preliminary) compared to 6.0 million for 2021.

NAR anticipates transactions to continue with current pace;

however, due to low inventory levels, recovery may not be sustainable.

According to NAR, the nationwide existing home sales median price for September 2021 (preliminary) was $352.8 compared to $311.5 in September 2020.

Due to low supply and high demand, the average sale price is expected to continue to increase, year over year, through the end of 2021.

however, due to low inventory levels, current transaction volume may not be sustainable.

According to NAR, the nationwide existing home sales median price for March 2022 (preliminary) was $375.3 compared to $326.3 in March 2021.

Due to low supply and high demand, the average sale price is expected to continue to increase through the remainder of 2022.

KEY BUSINESS METRICS

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The following table outlines the key business metrics that we periodically review:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands, except transactions and agent count)

$ 111,248,926

Gross margin (%)

Adjusted EBITDA (1)

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We continue to increase our agents and brokers significantly in the United States and Canada through the execution of our growth strategies.

Since 2019, we expanded operations to the U.K., Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany.

During 2020 and 2021, we expanded operations to the South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany.

In 2022, the Company has expanded into Greece and the Dominican Republic.

The rate of growth of our agent and broker base is difficult to predict and is subject to many factors outside of our control, including macroeconomic factors affecting the real estate industry in general.

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Our home sale transaction growth was directly related to the growth of our agent base over the prior comparative period.

We utilize gross margin, a financial statement measure based on U.S.

We utilize gross profit and gross margin, financial statement measures based on generally accepted accounting principles in the U.S.

GAAP”) to assess eXp’s financial performance from period to period.

Gross margin is calculated from U.S.

GAAP reported amounts and equals the difference between revenue and cost of sales (i.e., gross profit) as a percentage of total revenue.

Gross profit is calculated from U.S.

GAAP reported amounts and equals the difference between revenue and cost of sales.

Gross margin is the calculation of gross profit as a percentage of total revenue.

Commissions and other agent-related costs represent the cost of sales for the Company.

The cost of sales does not include depreciation, amortization, or stock compensation expenses as the Company’s assets are not directly used in the production of revenue.

Gross margin is based on the information provided in our results of operations or our consolidated statements of comprehensive income (loss), and is an important measure of our potential profitability and brokerage performance.

For the three months ended September 30, 2021 and 2020, gross margin was 7.2% and 8.3%, respectively.

For the nine months ended September 30, 2021 and 2020, gross margin was 7.9% and 9.2%, respectively.

The cost of sales does not include depreciation or amortization expenses as the Company’s assets are not directly used in the production of revenue.

Gross profit is based on the information provided in our results of operations or our consolidated statements of comprehensive income, and is an important measure of our potential profitability and brokerage performance.

For the three months ended March 31, 2022 and 2021, gross profit was $83.5 million, and $53.5 million, respectively.

The gross profit increased year-over-year due to significant growth of real estate transaction volumes.

For the three months ended March 31, 2022, and 2021, gross margin was 8.3% and 9.2%, respectively.

Gross margin decreased year-over-year primarily due to rising home prices and increased demand which resulted in agents reaching their commission capping requirements sooner, entitling them to a higher percentage of the home sale commission.

We continue to monitor our gross margin through efforts to improve our cost structure.

Management also reviews Adjusted EBITDA, which is a non-U.S.

GAAP financial measure, to understand and evaluate our core operating performance.

Adjusted EBITDA has grown significantly for the three and nine months ended September 30, 2021 and 2020 due to our revenue growth and improved leverage of our cost structure.

Adjusted EBITDA has grown significantly for the three months ended March 31, 2022 and 2021 due to our revenue growth and improved leverage of our cost structure.

RECENT BUSINESS DEVELOPMENTS

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Global Expansion of Our Real Estate Cloud Brokerage

During the fourth quarter of 2020, the Company expanded into South Africa, India, Mexico, Portugal and France.

In addition, the Company expanded into Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, and Germany in the first nine months of 2021.

In 2020, the Company continued its international expansion into France, India, Mexico, Portugal and South Africa.

Throughout 2021, the Company initiated operations in Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany.

During the first quarter of 2022 we have commenced operations in Greece and the Dominican Republic.

The Company continues to pursue growth opportunities into new global markets.

In addition to the international expansion, the Company also continues to focus on growth in the United States and existing international markets.

In addition to the international expansion, the Company continues to also focus on growth in the United States and in Canada.

Agent and Employee Experience

The Company has embarked on an initiative to better understand both its agents and employees’ experience.

The Company has embarked on an initiative to better understand both its agents’ and employees’ experiences.

In doing so, we have adopted many of the principles of the Net Promoter Score ® (“NPS”) across many aspects of our organization.

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An NPS above 50 is considered excellent.

The Company’s cumulative agent NPS was 71 through the third quarter of 2021.

Whether the overall question is "How likely are you to recommend eXp to your colleagues, friends, or family?"

The Company’s agent NPS was 71 in the first quarter of 2022.

Whether it be the overall question "How likely are you to recommend eXp to your colleagues, friends, or family?"

or more granular inquiries as to specific workflows or service offerings, we believe this will ensure we are delivering on the most important values to our agents and employees.

In turn, this often leads to enthusiastic fans of eXp who will promote our Company and continue leading us through strong organic growth.

This also ties into one of our core values of transparency.

While we strive for high satisfaction, it is equally important to investigate a low or unfavorable trending of NPS scores.

The NPS measure is an important vehicle for delivering on our core value of transparency.

While we strive for high satisfaction, it is equally important to investigate a low or unfavorable trending of NPS.

As NPS scores are often leading indicators to agents and employees’ future actions, we are able to learn quickly what may be a ‘pain point’ or product that is not meeting its desired objective.

We then take that information and translate it into action with an effort to remediate the specific root cause(s) driving the lower score.

This fast and iterative approach has already led to improvements in such parts of our business such as agent onboarding, commission transaction processing, and employee benefits.

This fast and iterative approach has already led to improvements in parts of our business such as agent onboarding, commission transaction processing, and employee benefits.

Agent Ownership

The Company maintains an equity incentive program whereby agents and brokers of eXp Realty can become eligible to receive awards of the Company’s common stock through the achievement of production and agent attraction benchmarks.

The equity incentive program continues to be a key element in creating a culture of agent-ownership.

Under our equity incentive program, agents and brokers who qualify may be issued awards of shares of the Company’s common stock, and it continues to be another element in creating a culture of agent-ownership.

Our agent compensation plans represent a key lever in our strategy to attract and retain independent agents and brokers.

The costs attributable to these plans are also a significant component of our commission structure and results of operations.

Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock issued at a 10% discount.

Our operational strategy and the importance of the agent compensation plans to our strategy have not changed.

Our stock repurchase program and agent growth incentive program are more fully disclosed in Note 8 – Stockholders’ Equity to the condensed consolidated financial statements.

Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock.

Technology Products and Services

We continue developing the core Virbela software platform and its underlying infrastructure through our subsidiary, eXp World Technologies, LLC, to accommodate for the increasing use and scale required to support our eXp Realty division.

In 2019, we released a new product centered on the concept of an open campus whereby small and independent organizations may utilize sub spaces as part of a larger campus similar to collaborative environments that currently exist in the physical brick-and-mortar world.

In the first quarter of 2020, Virbela began offering virtual events services.

Given the current environment due to the COVID-19 pandemic, there is an acute need for virtual workplace collaboration.

For the period ended September 30, 2021, Virbela continues to see growing demand from organizations exploring remote and hybrid operating models, including global Fortune-2000 firms with the need to connect distributed teams.

As a result, Virbela continues to invest in product and infrastructure improvements, along with new feature development.

Lastly, we expect to continue to service existing and new business-to-business enterprise-level contracts in the coming year.

Affiliated Services

Recent acquisitions and partnerships have allowed us to begin offering to customers more products and services complementary to our real estate brokerage business.

These affiliated services include mortgage origination, title, escrow, and settlement services, which we can now provide as a more inclusive offering in addition to our brokerage services.

We continue developing the core Virbela enterprise metaverse technology through our subsidiary, eXp World Technologies, LLC (“World Tech”), to accommodate for the increasing use and scale required to support all eXp subsidiaries and a growing number of

enterprise customers worldwide.

Virbela has seen increased interest from Fortune 2000 enterprises looking to become both customers and partners as they invest in metaverse technologies and build out their own strategies.

Enterprise readiness was a core product focus in 2021 (e.g., scale, reliability, security, and privacy).

In 2021, Virbela also released a new product called Frame into beta.

Frame is a metaverse collaboration technology that is accessible from any device with a browser (e.g., mobile, personal computer, virtual reality device, tablet).

In 2022, we expect to continue to service existing and new business-to-business enterprise level contracts, solidify channel partnerships, and bring the Frame product out of beta.

Affiliate and Media Services

Acquisitions and partnerships have allowed us to begin offering to customers more products and services complementary to our real estate brokerage business.

These affiliate and media services include mortgage origination, title, escrow, and settlement services, which we can now provide as a more inclusive offering in addition to our brokerage services.

We anticipate continued growth and investment in these service offerings through 2022;

however, actual performance will depend directly on utilization by eXp Realty agents and brokers and the on-going and fluctuating government implemented restrictions due to the COVID-19 pandemic.

Overall, these services are de minimis to our overall operations.

however, actual performance will depend largely on utilization by eXp and non eXp Realty agents.

In July of 2021, the Company formed SUCCESS Lending, LLC (“SUCCESS Lending”) a residential lending joint venture with Kind Partners, LLC, a subsidiary of Kind Lending, LLC.

With the formation of SUCCESS Lending, the Company intends to provide more enhanced mortgage services and products to customers.

Results of Operations

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Three Months Ended March 31, 2022 compared to the Three Months Ended March 31, 2021

Three Months Ended

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

(In thousands, except share amounts and per share data)

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Operating income

Other expense

Other expense, net

Other (income) expense

Other (income) expense, net

Equity in losses of unconsolidated affiliates

Other expense, net

Other (income) expense, net

Income before income tax expense

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GAAP Financial Measures.”

Our total revenues were $1.1 billion for the three months ended September 30, 2021 compared to $564.0 million for the same period in 2020, an increase of $546.5 million, or 97%.

Total revenues increased for the third quarter of 2021 primarily as a result of an increase in real estate brokerage commissions, which is directly attributable to increases in our agent count and closed transactions compared to the same period in 2020.

Additionally, the average home sale price for eXp closed transactions increased 15% to $359 during the three months ended September 30, 2021 from $313 for the same period in 2020.

Our total revenues were $1.0 billion for the three months ended March 31, 2022 compared to $583.8 million for the same period in 2021, an increase of $426.9 million, or 73%.

Total revenues increased for the first quarter of 2022 primarily as a result of an increase in real estate brokerage commissions, which is directly attributable to increases in our agent count, closed transactions and rising home price compared to the same period in 2021.

Commission and Other Agent Related Costs

Commission and other agent-related costs were $1.0 billion for the three months ended September 30, 2021 compared to $517.2 million for the same period in 2020, an increase of $513.8 million, or 99%.

Commission and other agent-related costs were $927.3 million for the three months ended March 31, 2022 compared to $530.3 million for the same period in 2021, an increase of $396.9 million, or 75%.

Commissions and other agent related costs increased as a result of an increase in our agent count and closed transactions compared to the same period in 2021.

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General and Administrative Expense

General and administrative expenses were $64.6 million for the three months ended September 30, 2021 compared to $30.1 million for the same period in 2020, an increase of $34.5 million or 114%.

General and administrative expenses include costs related to wages,

including stock compensation, and other general overhead expenses.

General and administrative expenses were $75.3 million for the three months ended March 31, 2022 compared to $46.3 million for the same period in 2021, an increase of $29.0 million or 63%.

General and administrative expenses include costs related to wages, including stock compensation, and other general overhead expenses.

General and administrative expenses increased primarily as a result of an increase of $18.2 million in compensation and personnel related expenses including salaries, employee benefits, and payroll taxes and payroll processing fees, an increase of $2.6 million in computer and software expenses, and an increase of $2.7 million in stock compensation expense.

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Sales and Marketing

Sales and marketing expenses increased to $3.8 million for the three months ended September 30, 2021 compared to $1.5 million the same period in 2020.

Sales and marketing expenses increased to $3.7 million for the three months ended March 31, 2022 compared to $2.3 million the same period in 2021.

This is due to an increase of $1.4 million in advertising as we continue to expand our real estate operations and software services.

Other Expense

There were no significant changes in other expense for the three months ended September 30, 2021 compared to the same period in 2020.

Income Tax Benefit (Expense)

The Company’s provision for (benefit from) income taxes amounted to ($12.9) million and $0.2 million for the three months ended September 30, 2021 and 2020, respectively, which represented effective tax rates of negative 117.90% and 1.38%, respectively.

The increase in income tax benefit was primarily attributable to the release of the valuation allowance and higher deductible stock-based compensation.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

(In thousands, except share amounts and per share data)

Statement of Operations Data:

Operating expenses

Commissions and other agent-related costs

General and administrative expenses

Sales and marketing expenses

Total operating expenses

Operating income

Other expense

Other expense, net

Equity in losses of unconsolidated affiliates

Total other expense, net

Income before income tax expense

Income tax (benefit) expense

Net loss attributable to noncontrolling interest

Net income attributable to eXp World Holdings, Inc.

Adjusted EBITDA (1)

Earnings per share

Weighted average shares outstanding

(1) Adjusted EBITDA is not a measurement of our financial performance under U.S.

GAAP and should not be considered as an alternative to net income, operating income or any other measures derived in accordance with U.S.

For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see “Non-U.S.

GAAP Financial Measures.”

Our total revenues were $2.7 billion for the nine months ended September 30, 2021 compared to $1.2 billion for the same period in 2020, an increase of $1.5 billion, or 127%.

Total revenues increased for the nine month period primarily as a result of an increase in real estate brokerage commissions, which is directly attributable to increases in our agent count and closed transactions compared to the same period in 2020.

Additionally, the average home sale price for eXp closed transactions increased 15% to $348 during the nine months ended September 30, 2021 from $303 for the same period in 2020.

Commission and Other Agent Related Costs

Commission and other agent-related costs were $2.5 billion for the nine months ended September 30, 2021 compared to $1.1 billion for the same period in 2020, an increase of $1.4 billion, or 130%.

Commissions and other agent related costs increased as a result of an increase in our agent count and closed transactions compared to the same period in 2020.

Rising home prices and increased demand also contributed to agents reaching their commission capping requirements sooner, entitling them to a higher percentage of the home sale commission.

General and Administrative Expense

General and administrative expenses were $171.6 million for the nine months ended September 30, 2021 compared to $82.1 million for the same period in 2020, an increase of $89.5 million or 109%.

General and administrative expenses include costs related to wages, including stock compensation, and other general overhead expenses.

General and administrative expenses increased primarily as a result of an increase of $53.3 million in personnel related expenses including salaries, employee benefits, and payroll taxes and payroll processing fees, an increase of $9.1 million in computer and software expenses, and an increase of $13.2 million in stock compensation expense.

These increased costs are a result of the Company’s growth in agent count and real estate transaction volumes, and the investment of employee and technology in supporting the growth in 2021.

Sales and Marketing

Sales and marketing expenses increased to $8.7 million from $3.3 million for the nine months ended September 30, 2021 compared to the same period in 2020, an increase of $5.4 million or 162%.

This is due to an increase of $2.0 million in advertising and lead capture costs as we continue to expand our real estate operations and software services.

Other Expense

There were no significant changes in other expense for the nine months ended September 30, 2021 compared to the same period in 2020.

Other Expense (Income)

There were no significant changes in other expense for the three months ended March 31, 2022 compared to the same period in 2021.

Income Tax Benefit (Expense)

The Company’s provision for (benefit from) income taxes amounted to ($33.3) million and $0.3 million for the nine months ended September 30, 2021 and 2020, respectively, which represented an effective tax rate of negative 102.46% and 1.22%, respectively.

The decrease in income tax expense was primarily attributable to the release of the valuation allowance and higher deductible stock-based compensation.

The Company’s provision for (benefit from) income taxes amounted to ($5.15) million and $0.21 million for the three months ended March 31, 2022 and 2021, respectively, which represented effective tax rates of negative 137.97% and positive 4.17%, respectively.

The increase in income tax benefit was primarily attributable to the deductible stock-based compensation windfalls.

GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S.

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with U.S.

GAAP, we use Adjusted EBITDA, a non-U.S.

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We believe that Adjusted EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted EBITDA.

In particular, we believe the exclusion

of stock and stock option expenses, provides a useful supplemental measure in evaluating the performance of our underlying operations and provides better transparency into our results of operations.

In particular, we believe the exclusion of stock and stock option expenses, provides a useful supplemental measure in evaluating the performance of our underlying operations and provides better transparency into our results of operations.

We are presenting the non-U.S.

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GAAP financial measure, for each of the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

Other expense, net

Three Months Ended March 31,

Other (income) expense, net

Income tax (benefit) expense

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Our current capital deployment strategy for 2022 is to utilize excess cash on hand to support our growth initiatives into select markets and enhance our technology platforms and for repurchases of our common stock.

As of September 30, 2021, the Company is not party to any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

In addition, the Company has no known material cash requirements as of September 30, 2021 relating to capital expenditures, commitments, or human capital (except commissions to agents and brokers concurrent with settled real estate transactions).

The cash requirements for the upcoming fiscal year relating to our leases and our debt associated with acquisitions is insignificant.

As of March 31, 2022, the Company is party to off-balance sheet arrangements, see Note 11 – Commitments and Contingencies for details of these arrangements.

In addition, the Company has no known material cash requirements as of March 31, 2022, relating to capital expenditures, commitments, or human capital (except as passthrough commissions to agents and brokers concurrent with settled real estate transactions).

For information regarding the Company’s expected cash requirement related to leases, see Note 6 – Leases to the condensed consolidated financial statements.

Cash requirements associated with our acquisitions include a $1.0 million payment of cash or common stock of the Company to the previous owners of Virbela, LLC due in November 2021.

During the first quarter of 2021, the Company paid $1.5 million of principal amount outstanding for the full settlement of the promissory notes issued to the previous owners of Showcase, which were due in installment payments during 2021.

For information regarding the Company’s expected cash requirement related to settlement costs, see Note 11 – Commitments and Contingencies .

We believe that our existing balances of cash and cash equivalents and cash flows expected to be generated from our operations will be sufficient to satisfy our operating requirements for at least the next twelve months.

Our future capital requirements will depend on many factors, including our level of investment in technology, our rate of growth into new markets, and cash used to repurchase shares of the Company’s common stock.

Our capital requirements may be affected by factors which we cannot control such as the changes in the

residential real estate market, interest rates, and other monetary and fiscal policy changes to the manner in which we currently operate.

In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through equity or debt financing.

Our future capital requirements will depend on many factors, including our level of investment in technology, our rate of growth into new markets, and cash used to repurchase shares of the

Company’s common stock.

Our capital requirements may be affected by factors which we cannot control such as the changes in the residential real estate market, interest rates, and other monetary and fiscal policy changes to the manner in which we currently operate.

In order to support and achieve our future growth plans, we may need or seek advantageously to obtain additional funding through

equity or debt financing.

We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next twelve months.

We currently do not hold any bank debt, nor have we issued any debt instruments through public offerings or private placements.

If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would likely suffer.

As of September 30, 2021, our cash and cash equivalents totaled $98.1 million.

Cash equivalents are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase;

primarily money market funds.

We currently do not possess any marketable securities.

Net Working Capital

Net working capital is calculated as the Company’s total current assets less its total current liabilities.

The following table presents our net working capital as of September 30, 2021 and December 31, 2020:

September 30, 2021

The following table presents our net working capital as of March 31, 2022 and December 31, 2021:

March 31, 2022

December 31, 2021

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Net working capital

For the nine months ended September 30, 2021, net working capital increased to $116.7 million, or 1%, compared to December 31, 2020 primarily due to an increase in agent and commission receivables directly related to the increase in revenue.

The following table presents our cash flows for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

For the three months ended March 31, 2022, net working capital increased to $146.2 million, or 10%, compared to December 31, 2021 primarily due to an increase in agent and commission receivables directly related to the increase in revenue.

The following table presents our cash flows for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Cash provided by operating activities

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Net change in cash, cash equivalents and restricted cash

For the nine months ended September 30, 2021, cash provided by operating activities increased $109.2 million compared to the same period in 2020.

For the three months ended March 31, 2022, cash provided by operating activities increased $32.6 million compared to the same period in 2021.

The change resulted primarily from the increased real estate transactions volume, increase in customer deposits, and higher participation by our agents and brokers in our agent stock compensation programs.

For the nine months ended September 30, 2021, cash used in our investing activities increased due to higher capital expenditures and acquisition-related payments.

For the nine months ended September 30, 2021, the increase in cash flows used in financing activities primarily were related to repurchases of our common stock and payment of cash dividend, partially offset by proceeds received from the exercise of stock options.

For the three months ended March 31, 2022, cash used in our investing activities increased due to higher capital expenditures.

For the three months ended March 31, 2022, the increase in cash flows used in financing activities primarily were related to repurchases of our common stock and payment of cash dividend, partially offset by proceeds received from the exercise of stock options.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis